European shares fell on Monday, with peripheral markets such as Italy and Spain among the worst hit, after data showed the euro zone's private sector slowed in February, damping hopes the region will avoid slipping into recession.

Heavyweight steel and mining stocks such as ArcelorMittal and Rio Tinto felt the pinch from China's trimmed growth target, which sparked a retreat in metal prices.

At 12:24 p.m., the FTSEurofirst 300 <.FTEU3> index of top European shares was down 0.7 percent at 1,079.74 points, while The euro zone's blue-chip Euro STOXX 50 <.STOXX50E> index was down 0.9 percent at 2,522.10 points.

Economic growth is now centre stage this week. The market is a bit tense after last week's highs, and it needed to take a breather, and we see people calmly booking profits, said Guillaume Barabedian, market analyst at Meeschaert Gestion Privee, which has about 3 billion euros ($4 billion) in assets under management.

Spain's underperforming IBEX <.IBEX> lost 1.4 percent. It has fallen 1.3 percent in 2012 so far, while the FTSEurofirst 300 is up 7.8 percent, and Germany's DAX <.GDAXI> has added 16 percent.

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Asset returns in 2012: http://link.reuters.com/nyw85s

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Data on Monday showed a sharp downturn among Italian and Spanish businesses, dragging the euro zone's private sector back into a slowdown last month, while Germany continued to expand but at a slower pace. Economic activity in France stalled.

Markit's Eurozone Composite PMI, which gauges the activity of manufacturing and services companies, slipped to 49.3 in February, revised down from a preliminary reading of 49.7 and below January's reading of 50.4. A reading below 50 denotes a contraction in activity, meaning Europe's private sector has been stuck in a modest decline for five of the last six months.

Finmeccanica dropped 3.7 percent, BBVA fell 1.8 percent, and Banco Santander lost 1.6 percent.

MINERS UNDER WATER

Resource-related shares lost ground, with Rio Tinto down 2.9 percent and ArcelorMittal down 2.4 percent, while Salzgitter tumbled 5.4 percent after saying it would be a challenge to repeat last year's results.

Speaking at China's annual parliamentary session, the country's Premier, Wen Jiabao, cut his nation's growth target to 7.5 percent for 2012.

Slower Chinese growth means a negative impact on the world and commodity markets. In the short term, this is probably a negative for risky assets, said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

The Euro STOXX 50 has gained 15 percent since mid-December, when the European Central Bank offered unlimited and cheap three-year funding to banks in a bid to avoid a credit crunch and cut borrowing costs for debt-stricken countries such as Spain and Italy.

But the brisk rally lost steam last week, as investors' attention turned to the grim economic outlook for the euro zone, and fund flows data showed poor appetite for European equities.

According to data from EPFR Global, European equity funds posted their biggest outflow in 14 weeks during the week ended February 29, with outflows from Germany and UK equity funds hitting 12 and 28-week highs, respectively.

Technical charts suggest an exhaustion of the recent rally, at least in the short term, with divergence between indexes and their relative strength indexes (RSIs), whose peaks have shown a declining trend over the past few days while the indexes rallied, a signal that the market is ripe for a pull-back.

We can't exclude a short-term consolidation wave that could drag indexes down 3 to 5 percent, said Gerard Sagnier, technical analyst at Aurel BGC in Paris.

(Reporting by Blaise Robinson, additional reporting by Juliette Rouillon and Atul Prakash in London; Editing by Will Waterman)